Originally Posted by Nords
The last number I saw for a 2013 pay raise was 1.7%. Waiting a month to use the 2013 pay tables would cost you a month of retired pay (let's call it $1000) but would boost your pension by 1.7%. (This is only an effect on us Final Pay pensioners.) So you'd earn an extra $17/month for the rest of your life, and the payback on the foregone $1000 would be just under five years.
OK, lets assume I want to start retiree pay in Dec and according to the 2012 pay table its $1000/month. Lets also assume the pay raise of 1.7% goes into effect for 2013. I collect $1000 in Dec and $1017 starting the next month, Jan 2013. Now, lets say I decide to delay pay to start Jan 2013. Since pay raise has gone into effect, my Jan paycheck will still be $1017. So, I'm confused....how does delaying start month from Dec to Jan benefit me?
Originally Posted by Tekward
I had not considered this since the payback period is based on the difference between the pay table raise and the annual COLA. If the retirement date is December they would get a COLA and reduce the $17/month difference and extend the break-even point. Am I off-base?
Nope. This is a one-time opportunity to game the active-duty pay raise.
You'd collect $1000 in Dec but you wouldn't get the 2013 COLA since you hadn't been retired long enough, so you'd receive $1000 for each of the next 12 months. Then at the end of 2013 you'd get a retiree COLA for 2014. And every year after that you'd get a retiree COLA, but you'd never see an active-duty pay raise.
If you waited until Jan then you'd get $1017, and at the end of that 2013 you'd get the same retiree COLA applied to the extra $17 as well as the $1000. So it's actually a bit of a compounding effect.
But you'd never again be able to exploit an active-duty pay raise.
The amount of the pension and the amount of the pay raise affect your payback period, so it might not be worth waiting a month if the payback is 10+ years.
This is just a niche for Final Pay retirees, not for High Three, because High Three averages their final 36 months of pay and one month isn't a significant difference. And it really only makes a difference if you're born in Nov/Dec. My spouse is a Nov birthday so I remembered the gimmick.
I read about this deferral option just once in the AUSN magazine, so it was published somewhere between 2001 and 2008. But I can't find it.
By the way, one of you sent me a PM about calculating a High Three Reserve retirement, so here's how it works.
Here's what the Association of the U.S. Navy website says about High Three Reserve retirement in one of their articles:
This system applies to anyone with a DIEMS of 8 September 1980 to present. Retired pay is calculated based on a figure derived from the average of the last 36 months of basic pay for the approved retired grade (highest grade satisfactorily held), and from the length of service (longevity) prior to reaching age 60. In other words, it is the basic pay in effect when you were ages 58, 59, and 60. The percentage of that figure (36-month average) you will receive is calculated by dividing your total points by 360 and multiplying that figure (equal to years and months) by 2.5 percent.
So you still start with your total points, divided by 360, multiplied by 2.5% to get the service multiple.
But then the pay calculation is painful. You have to have 36 months of pay charts (the years you turn ages 60, age 59, age 58, and age 57). For each one you'll take the max pay at that rank (max longevity) and the number of months of that year. Then you'll add them all together and divide by 36.
Let's say you turn age 60 in June 2012. You'd use six months (Jan-June) of pay for that rank at the max longevity in the 2012 pay table.
Then you'd use 12 months of max pay for that rank in the 2011 pay table.
You'd add another 12 months of max pay for that rank in the 2010 pay table.
Finally you'd add another six months of max pay for that rank in the 2009 pay table.
Now that you have the final 36 months of pay, you add all those numbers up and divide by 36 to get the final average monthly high-three pay.
That base pay number is multiplied by the service multiple to get the monthly pension amount.
AUSN's website doesn't even have a calculator for this. They have a "Contact us" form that you fill out with the pertinent birthday & points data, and then someone at AUSN calculates the pension amount by hand.
This might not make for a very exciting blog post, but it'll be a challenge to write!